Chris O'Shea
One way to keep your credit score as high as possible is to maintain a good “credit mix.” That means having both installment credit accounts and revolving credit accounts. Think of the former as a great way to build your credit, as they allow for payments over time, and payment history is a big factor in your score.
Let’s take a look at everything you need to know about installment credit.
What is Installment Credit?
Installment credit is a type of loan where you make fixed payments over a period of time. Installment credit accounts also have fixed or variable interest rates and a fixed repayment term.
Common types of installment credit include:
- Mortgages
- Personal loans
- Auto loans
How Installment Credit Works
When you apply for an installment credit account:
- You borrow a fixed amount of money
- Make specific payments until the loan is paid off.
- These loans can have payment terms of months or years.
- Installment loans may have fees, such as origination fees and late payment fees.
Installment vs. Revolving Credit
With revolving credit accounts, you can carry a balance on the loan from month to month. You can also decide how much you want to borrow and how much you repay.
Examples of revolving credit accounts include:
- Credit cards
- Home equity lines of credit
How Installment Accounts Can Impact Your Score
Since payment history is the largest factor in calculating your score, making on-time payments over a long period of time on an installment loan can benefit your credit score greatly.
Jean Chatzky
